The Enid News and Eagle, Enid, OK

Ag

February 9, 2013

Beef production headed down

ENID, Okla. — Beef production for 2012 decreased by a projected 1.1 percent compared to 2011, with a 3.3 percent decrease in slaughter partially offset by a 2.3 percent increase in carcass weights.

In 2013, mostly steady carcass weights and a 5 percent or more decrease in cattle slaughter is expected to result in a 4.8 percent decrease in beef production. This would be the second largest year-over-year decrease in 35 years, second only to the 6.4 percent decrease in 2004.

The 2013 decrease is expected to be followed by a 2014 decrease of 4.5 percent or more. These two years would represent the largest percentage decrease since the late 1970s.

The impact on consumption, however, does not always match the change in production. Domestic per capita consumption will depend on production levels but must be adjusted for beef imports and exports. In 2013, per capita beef consumption is expected to drop 3.5 percent, less than the production decrease because beef imports will increase and beef exports will decrease.

The decrease in per capita beef consumption in 2013 will be similar to the year over year decrease in 2011 compared to 2010. In 2011, domestic per capita beef consumption decreased 3.8 percent due to a sharp increase in beef exports despite a minimal decrease in beef production. Though 2004 had a sharper production decrease, per capita beef consumption that year increased nearly 2 percent due to the sharp drop in beef exports following the first BSE case in the U.S. Beef consumption may drop more sharply in 2014 with a 5 percent decrease in per capita consumption compared to the lower 2013 level.

These decreases in beef production and consumption almost certainly imply higher wholesale and retail beef prices.

However, several other factors will impact the price response to lower supplies. Clearly, the sluggish macroeconomic recovery continues to limit beef demand. Choice boxed beef has been trapped in a narrow range between $193 and $198/cwt. for the past three months. Retail beef prices were flat to slightly lower through much of 2012 but did jump sharply in November. In 2011, a similar decrease in beef consumption resulted in a 15 percent increase in boxed beef prices and a nearly 10 percent increase in retail prices. Total meat consumption decreased about two percent in 2011, and a similar 2.1 percent decrease is expected in 2013 with both pork and broiler consumption expected to be down roughly 1.5 percent each.

The pressure for higher boxed beef prices will increase significantly with an expected 4.5 percent decrease in beef production in the first quarter of 2013. Choice boxed beef should move above $200/cwt. in the next few weeks. Beyond that, it will be a question of how much and how fast retailers can pass along the higher wholesale prices to consumers. It is not really a question of whether retail prices will go up but rather a question of how much and how fast.

Beef demand remains the biggest unknown in the beef industry and will determine just how severe the squeeze will be on industry margins in 2013.

Peel is a faculty member in Oklahoma State University’s Department of Agricultural Economics.

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